Treasury Wine hopes big UK brand will blossom in Australia

By Simon Evans

09 May 2016 — 12:00 AM

Treasury Wine Estates will bypass big liquor store retailers Woolworths and Coles in the first phase of an Australian launch of powerhouse United Kingdom brand Blossom Hill to help reduce cannibalisation with its own bulging local portfolio of brands.

Treasury, the maker of Penfolds, Wolf Blass and Rosemount, is taking a punt that it can replicate the success of Blossom Hill, which is the No.1 selling white wine in the United Kingdom by both volume and value, and No.1 in the fast-growing rosé category. Blossom Hill is also the No.2 red wine brand in the UK market.

Treasury Wine Estates is about to start selling Blossom Hill in Australia. Chief executive Mike Clarke originally wasn't too keen on in the Diageo wine portfolio.
David Mariuz

Treasury chief executive Mike Clarke's strategy in buying the Diageo portfolio was to get his hands on the premium Californian red wine brands which had been neglected, and he reluctantly agreed to also take the Blossom Hill brand, a UK-focused brand that was more in the "cheap and cheerful" segment.

Independents first strategy

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Treasury's managing director of Australia and New Zealand, Angus McPherson, told Fairfax Media that a local version of Blossom Hill made by Australian winemakers was being deliberately sold through independent retail chains first up as part of a mid-May launch, but it may be expanded more broadly in the future.

"It's just the first phase of the launch. We're using the same model that was used in the United Kingdom," he says.

Treasury is steering clear of the big liquor chains like Dan Murphy's and BWS operated by Woolworths, and First Choice and Liquorland run by Coles.

"The strategy is make sure we see it well established in the independents first," he says.

Mr McPherson says the main focus is on the fast-growing rosé segment, which is growing at 19 per cent per annum in Australia across all players.

Minimal cannibalisation

"It's about growing the category for us," he says. Blossom Hill will be pitched at a price point of $12.99 per bottle.

He says there will be minimal cannibalisation with existing Treasury brands such as Annie's Lane, and Squealing Pig from New Zealand, in those segments.

Looking sweet

Treasury wants to convert more cider drinkers in the 20-plus age group to be consumers of lighter, crisp styles in the rosé and moscato segments.

Treasury shares have doubled in price to $9.98 compared with around $5 in July, 2015 on booming demand for Penfolds and Wolf Blass in Asia.

Andrew Mitchell, portfolio manager from Ophir Asset Management, says the acquisition by Treasury of the Diageo wine business was a smart move by Mr Clarke.

"It makes both financial and strategic sense," Mr Mitchell says.

"Diageo has given Treasury Wine another avenue of growth," he says.

Ophir, whose flagship fund delivered a return of 77.5 per cent in 2015, thinks there is even more gains the share price can make if the recipe for reinvigorating the core Treasury wine brands with extra investment and focus on the top tier, can be replicated in the United States with the Diageo stable.

"If the company can deliver on its transformational plan there is plenty of share price upside from here," Mr Mitchell says.